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During the last week of 2018, chicken production fell 14% (yoy) and the six-week average was down 3.1%. USDA-NASS reporting remains closed, limiting available data to provide more robust estimates on forward broiler production. Still, forecasts call for chicken output to be modest into late winter. The lighter production schedules have boosted chicken prices, breaking out of the historically low trading ranges we’ve seen since early fall. Chicken breast values have achieved the highest level since August. The ArrowStream Chicken Wing Index is currently the most expensive in almost a year. Further price support for chicken is likely this winter despite big cold storage inventories.
Last week’s cattle harvest came in at 520k, up from the Christmas shortened prior week, but was 4.6% below the same week last year. With impressive forward sales on the books, beef packers are expected to boost production. But beef prices should remain supported as deliveries are carried out on existing sales. Typically, beef demand wanes in Jan/Feb, but last year ended strong which hints that an upside price risk may still occur. Choice ribeyes have fallen 13% from their December peak but are still above year ago levels. The 50% beef trim market has fallen, and, given lighter carcass weights and easing fed cattle numbers this winter, this year’s typical seasonal advances may be more intense.
Weekly pork production for the first week of the new year jumped 6.3% from a year ago. Pork production is projected to be large this year and the USDA pork cutout value may struggle as a result. Currently, the USDA pork cutout is the lowest since 2016 with a few record low prices on many of the primals. The one exception is the pork belly cutout which is up 11% (yoy). From here, it may be tough for belly prices to continue to rise as buyers could become more cautious.
The salmon markets are tracking near year ago levels despite solid imports this past fall. The U.S. is estimated to have imported nearly 8% more shrimp than the previous year during the last few months. October imports were up 8.6%. If the inflated U.S. dollar value persists, it should encourage imports during the winter and mitigate the upside risk in the salmon markets.
The Idaho potato markets are starting to seasonally firm as buyers will depend on storage supplies into the summer. The good news is that U.S. storage supplies are historically solid. As of December 1st, the total U.S. potato inventory in storage was 2.8% larger than the previous year and the biggest for the date in over a decade. Idaho potato supplies were larger by 4.2%. This could temper the upside risk in potato prices in the coming months. Short supplies from Mexico have supported tomato prices. Still, the risk in prices is to the downside.
The kitchen sink
The cheese markets have softened over the last week and remain historically low. Per the USDA, November 30th cheese stocks were up 7% (yoy) and a record for the month. But, the drawdown in November was the best in five years, a sign of better demand. The downside risk for cheese prices from here is limited. Butter prices have risen modestly as of late. November 30th butter stocks were down 3% (yoy) and the smallest for the date since 2015. The monthly drawdown was a record for the month. Since 2015, the average move for spot butter prices in the next four weeks was up 5.4%.
The grain markets have remained relatively range-bound during the last several weeks but at historically attractive levels. China-U.S. trade talks are progressing, and China has recently imported more U.S. soybeans. Still, the burdensome U.S. soybean supply is likely to temper any upside price potential this winter.
In November, nearby WTI crude oil futures hit the lowest level since June 2017 but have risen 19.8% (from that low). Saudi Arabia recently announced further crude oil production cuts. Nearby crude oil futures could hit resistance at $54.90.